One of the most common questions we get from business owners is: should I go fixed or variable? It’s a fair question, and the answer isn’t always straightforward. Let’s break down what each option actually means and when each one makes sense.

What is a fixed rate?

A fixed rate means your unit price for gas or electricity stays the same for the duration of your contract. If you sign a two-year fixed deal at 25p per kWh, that’s what you’ll pay for the next two years, regardless of what happens in the wholesale market.

The appeal is predictability. You know exactly what your energy will cost each month, which makes budgeting easier. If wholesale prices go up, you’re protected. Your rate doesn’t change.

The trade-off is flexibility. If wholesale prices drop significantly, you’re still locked into your fixed rate. You can’t take advantage of cheaper prices without breaking your contract, and that usually comes with an exit fee.

What is a variable rate?

A variable rate (sometimes called a flexible or pass-through rate) fluctuates based on wholesale energy prices. Your rate goes up when the market goes up, and down when the market goes down.

There are a few variations:

Fully variable — your rate tracks the wholesale market closely, changing monthly or even daily
Capped variable — your rate fluctuates but has an upper limit
Basket pricing — your energy is purchased in tranches over time, averaging out the price

The appeal is opportunity. When prices drop, you benefit immediately. You’re not locked into a rate that might look expensive in six months.

The trade-off is risk. When prices spike — and they can spike dramatically — your bills go up. If your business can’t absorb unexpected cost increases, that’s a real problem.

When fixed makes sense

Fixed rates tend to work best when:

You need budget certainty. If your business runs on tight margins and can’t absorb unexpected energy cost increases, fixing your rate removes that risk.
Wholesale prices are low or falling. If the market is at a historical low point, locking in a fixed rate captures that price for the long term. Of course, knowing when the market is truly at a low is the tricky part.
You don’t want to think about it. Fixed rates are simple. Sign the contract, pay the same rate, move on with running your business. There’s real value in that simplicity.
Your contract is for 1-2 years. Fixing for shorter periods limits your exposure if the market moves against you. Three-year fixed contracts can work out well, but they can also mean overpaying if prices drop mid-contract.

When variable makes sense

Variable rates tend to work best when:

You can tolerate price fluctuations. If your business has healthy margins and can handle bills going up 10-20% in a bad month, variable pricing gives you the chance to pay less overall.
Wholesale prices are high. If the market is elevated, going variable gives you the opportunity to benefit when prices come back down rather than locking in at the peak.
You’re a large energy consumer. Larger businesses (especially in manufacturing, logistics, or hospitality) can sometimes save significantly with flexible purchasing strategies that buy energy in tranches over time.
You have an energy manager or broker watching the market. Variable pricing requires monitoring. If someone is actively managing your energy purchasing, they can time purchases to minimise cost. If nobody’s watching, you’re just hoping for the best.

The hybrid approach

You don’t have to choose one or the other entirely. Some businesses fix part of their consumption and leave the rest variable. This is sometimes called a blended strategy, and it can give you the best of both worlds — budget certainty on the majority of your energy, with some exposure to market upside on the rest.

This approach is more common among larger businesses, but it’s worth asking about if your consumption is significant.

For most small and medium businesses, a fixed rate contract of 12-24 months is usually the safest option. Here’s why:

It eliminates risk. You know what you’re paying.
It’s simple. No monitoring required.
The premium over variable rates is usually modest — you’re paying a small amount for certainty.
If prices go down, you can often renegotiate at renewal.

Variable rates can deliver savings, but they require active management and a tolerance for volatility that most SMEs don’t have — or want.

The honest answer

There’s no universally “right” choice. It depends on your business size, your risk tolerance, your industry, and what’s happening in the market when you’re buying.

What we’d encourage you to avoid is making the decision blindly. Know what you’re signing, understand the trade-offs, and make sure you’re seeing the full picture before committing.

If you’re not sure which option is right for your business, get in touch. We’ll look at your consumption data, explain what the market looks like right now, and help you make a decision that actually fits your situation.

Fixed vs Variable Energy Rates: Which Is Right for Your Business?